Sudhansu Jyoti Mukhopadhaya J. (Chairperson)

This appeal has been preferred by the appellant against order dated March 6, 2017 (since reported in-Kasturi and Sons Ltd. v. Sporting Pastime India Ltd. [2017] 203 Comp Cas 595 (NCLT)) passed by the National Company Law Tribunal, Chennai Bench (hereinafter referred to as the Tribunal) in a petition under section 111A read with Sections 397, 398, 402 and 403 of the Companies Act, 1956, directing the appellants and others, to implement the award dated December 16, 2009 in its letter and spirit by making rectification in the register of members of the second respondent-company, M/s. Sporting Pastime India Ltd. (hereinafter referred to as SPIL) incorporating the name of the first respondent/petitioner-M/s. Kasturi and Sons Ltd. (hereinafter referred to as KSL). The appellant has also been directed to pay the consideration as has been mentioned in the award to the concerned person.

2. The case of the appellant is that the first respondent, KSL, had instituted a frivolous dressed-up company petition under sections 111, 397, 398, 402 and 403 of the Companies Act, 1956, against the second respondent, SPIL, predominantly seeking implementation of award dated December 16, 2009 passed by the arbitral tribunal. It was submitted that no case of "oppression and mismanagement" or "rectification of register of members" has been made out. On the other hand, as apparent from paragraph 2 of the impugned order, the very purpose of filing of the petition was to get the award implemented. Learned counsel for the appellant submitted that the Tribunal is not the appropriate authority to execute an arbitral award or its objection which is beyond the scope of the Companies Act, 1956/2013 and barred by Section 42of the Arbitration and Conciliation Act, 1996.

3. It was further contended that the arbitral award dated December 16, 2009 is not binding on the appellant as the appellant was not a party to the agreement dated July 19, 2014 and the arbitration proceeding. The agreement dated July 19, 2014 was reached between the first respondent (KSL) and the second respondent (SPIL). Only the disputes between the parties can be the subject matter of arbitration and arbitral award proceeding and is binding only on the parties to the arbitral proceeding and is not binding on the appellant, being not a party to the arbitration proceeding. Therefore, no claim against the appellant can be subject matter of reference before an arbitrator, as the arbitral award is not binding on the appellant.

4. Next, it was further contended that non-binding nature of the award the appellant envisage that the appellant has not been directed to transfer the share certificates and therefore share certificates cannot be transferred to or handed over to any person.

5. It was further contended that even seeking rectification of register of members is not permissible when the shares have not been transferred by the appellant, which are in its possession in view of Section 56 of the Companies Act, 2013.

6. According to the appellant, it acquired 2,42,99,996 equity shares of Rs. 10 each from the first respondent, KSL as a separate legal independent entity, which has been misrepresented by the first respondent, KSL, to suit its own case. The appellant is an independent shareholder as shown in the annual returns filed by the company and does not hold shares on behalf of one Mr. K. C. Palanisamy, as his nominee.

7. Learned counsel for the respondents, contended that the first respondent (KSL) is a promoter and holding company of the second respondent (SPIL) and runs National newspapers (The Hindu and The Business Line) and magazines such as Frontline and Sports Star. The first respondent (KSL) incorporated the second respondent (SPIL) as a 100 per cent, subsidiary company of the first respondent-company (KSL), established, inter alia, for the sole purpose of establishing and running of golf course and beach resorts. For the said purpose, loans were acquired for tire project by the first respondent (KSL) through the second respondent (SPIL). Further, the case of the first respondent (KSL) is that the first respondent (KSL) entered into an agreement on July 19, 2014 with the third respondent, Mr. K. C. Palanisamy. Mr. K. C. Palanisamy agreed to acquire the second respondent-company (SPIL) from the first respondent (KSL) by agreement dated July 19, 2004. In exchange, Mr. K. C. Palanisamy undertook to repay loans incurred by the second respondent (SPIL). Pursuant to such agreement, 90 per cent, of the shareholding of the second respondent (SPIL) was transferred to Mr. K. C. Palanisamy and the companies nominated by him, namely Cheran group of companies, including the appellant.

8. Pursuant to said agreement, Mr. K. C. Palanisamy, ditched the agreement and as a result the first respondent (KSL) was constrained to repay the loans incurred by the second respondent (SPIL) for initiating arbitration proceeding against Mr. K. C. Palanisamy in terms of the arbitration clause of the agreement.

9. The first respondent (KSL) filed certain interim application before the Madras High Court to safeguard and protect its interest on account of breach of agreement by Mr. K. C. Palanisamy (the third respondent). In one of such Application No. 179 of 2005 dated February 22, 2005 the hon'ble High Court passed an order injuncting the third respondent (K. C. Palanisamy), the second respondent (SPIL) and the appellant from transferring, encumber, alienate or sell the properties of the second respondent (SPIL). The hon'ble High Court also passed an order on April 1, 2005 in Application No. 298 of 2005 appointing the company secretary of the first respondent-company (KSL), namely, Shri S. Kuppuswamy as interim receiver of M/s. Sporting Pastime India Ltd. (SPIL).

10. On December 16, 2009 the arbitral tribunal passed an award holding that the agreement dated July 19, 2004 stands restored and thereby 100 per cent, shareholding to the first respondent (KSL) was restored in the second respondent (M/s. Sporting Pastime India Ltd.) company. In the light of the said arbitral award, the second respondent (SPIL) and Mr. K. C. Palanisamy as managing director of the second respondent-company (SPIL), were under obligation to implement the award and to make rectification in the register of members of the second respondent-company (SPIL) restoring 100 per cent, shareholding to the first respondent (KSL).

11. As the appellant who is holding share of Mr. K. C. Palanisamy as his nominee and the second respondent-company (SPIL) failed to hand over the relevant documents and carry out directions as per arbitral award, the first respondent (KSL) issued the letter dated December 18, 2009 along with photocopy of banker's cheque for Rs. 3,58,11,000 (rupees three crores fifty eight lakhs eleven thousand only) to Mr. K. C. Palanisamy (the third respondent) with a copy to the second respondent (SPIL) requesting them to comply with the award. However, no action has been taken. Thereafter the first respondent (KSL) was constrained to exercise its remedy under sections 111, 397, 398, 402 and 403 of the Companies Act, 1956 and filed a petition before the erstwhile Company Law Board for seeking various reliefs, including cancellation and rectification of the transfer of 2,43,00,000 shares issued in the name of the appellant, second, eighth and ninth respondents in the share capital of SPIL and restoration of the name of the first respondent (KSL) as holder of such shares in the share capital of the second respondent-company (SPIL).

12. Learned counsel for the appellant relied on the decision of the hon'ble Supreme Court in S. N. Prasad, Hitek Industries (Bihar) Ltd. v. Monnet Finance Ltd. [2011] 1 SCC 320, 324. In the said case, referring to the provisions of the Arbitration and Conciliation Act, 1996, the hon'ble apex court observed :

"The Act makes it clear that the arbitrator can be appointed under the Act and at the instance of a party to an arbitration agreement only in respect of disputes with another party to the arbitration agreement. If there is a dispute between a party to an arbitration agreement with other parties to the arbitration agreement as also non-parties to the arbitration agreement, reference to arbitration or appointment of arbitrator can be only with respect to the parties to the arbitration agreement and not the non-parties."

13. From the record we find that Mr. K. C. Palanisamy, the third respondent and the second respondent (SPIL), challenged the arbitral award in O. P. Nos. 98 and 272 of 2012 before the Madras High Court. Both the petitions were dismissed on the merit on April 30, 2015 with adverse remarks against Mr. K. C. Palanisamy, the third respondent. Against the said order, appeals were preferred by the second and the third respondents beyond the period of limitation. The hon'ble Madras High Court, vide order dated January 24, 2017 in C. M. P. Nos. 18929 and 18930 of 2016 in O. S. A. Nos. 51833 and 51848 of 2015 refused to condone the delay in preferring the appeal and both the appeals were dismissed. The second and third respondents thereafter filed the special leave petition before the hon'ble Supreme Court and which were also dismissed. According to the respondents, after dismissal of the special leave petition, arbitral award dated December 16, 2009 has become final restoring 100 per cent, shareholding of the first respondent (Kasturi and Sons Ltd.) in the second respondent-company (M/s. Sporting Pastime India Ltd.).

14. The respondents have placed reliance on decision dated April 29, 2011 passed by Madras High Court in "O. A No. 138 of 210-Kasturi and Sons Ltd. v. K. C. Palanisamy". In the said case, the hon'ble Madras High Court formulated the following questions for consideration :

(1) Whether an order of interim injunction can be passed against the respondents who are not party(s) to the arbitration agreement or arbitration proceedings ?

(2) Whether respondents Nos. 3 to 6 can be said to be nominees of Sri K. C. Palanisamy so as to be bound by the arbitral award, for passing interim direction against them ?

In the said judgment at paragraph 82, the hon'ble High Court observed and held as follows :

"82. Clause 14, the applicant recognised the right of Sri K. C. Palanisamy or his nominees to sell or transfer the holdings in M/s. Sporting Pastime India Ltd. to any other person of his choice provided the proposed transferee accepted the terms and conditions mentioned in the agreement for the management of M/s. Sporting Pastime India Ltd. and related financial aspects covered by this agreement. The applicant also agreed to indemnify against all losses, damages, claims."

15. At paragraph 141 of the said judgement, the Madras High Court noticed the Kerala High Court decision and observed :

"141. The hon'ble Kerala High Court, further held that the application is maintainable against the party to the arbitration agreement, or at best, against any person claiming under him. Respondents Nos. 3 to 6 have purchased the shares as nominees of the first respondent and not as of independent right. No material other than the agreement dated July 19, 2004 has been placed on record to show that respondents Nos. 3 to 6 exercises their independent right to purchase the shares."

16. From the aforesaid finding of the hon'ble Madras High Court which is final and binding between the parties, it is clear that the first respondents (KSL) recognised rights of Mr. K. C. Palanisamy or his nominees to sell or transfer the holdings of M/s. Sporting Pastime India Ltd., to any other person of his choice

provided the proposed transferee accepted the terms and conditions mentioned in the agreement for the management of M/s. Sporting Pastime India Ltd. and related financial aspects covered by the said agreement. 17. Mr. K. C. Palanisamy and some others preferred different civil appeals before the hon'ble Supreme Court reported as Chandran Ratnaswamy v. K. C. Palanisamy [2013] 6 SCC 740. The hon'ble Supreme Court while noticed in the judgment dated May 9, 2013 and observed : "mala fide intention was attracting a civil matter arising out of company dispute having attained finality into a criminal court held that such criminal cases are not maintainable". The appeal preferred by Mr. K. C. Palanisamy was dismissed. 18. From the aforesaid facts, it is clear that the appellant-Cheran Properties Ltd., is a nominee of Mr. K. C. Palanisamy and in fact holding the shares of Mr. K. C. Palanisamy on his behalf. In the aforesaid background it was always open to the Tribunal to pass order under Section 111 of the Companies Act, 1956, without answering the question of "oppression and mismanagement" even though such allegations were raised. We find no merit in this appeal. It is accordingly dismissed. However, in the facts and circumstances there shall be no order as to costs.